FSB extends implementation timelines for SFTs
08 September 2020 Basel
Image: Proxima Studio / Adobestock
The Financial Stability Board (FSB) has extended the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs).
The FSB has put this in place to ease operational burdens on market participants and authorities and to assist them in focusing on priorities from the impact of COVID-19.
As a result of today’s announcement, the implementation timelines for the FSB’s November 2015 recommendations on haircuts for non-centrally cleared SFTs will now be extended.
Earlier in March, the group of central bank governors and heads of supervision decided to defer the implementation of the Basel III framework by one year to January 2023.
In addition to this, the FSB decided to also extend the implementation dates by one year for its policy recommendations related to minimum haircut standards for non-centrally cleared SFTs.
For bank-to-non-bank transactions, the updated implementation date is January 2023, for non-bank-to-non-bank transactions, the updated implementation date is January 2025.
SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and the secondary market liquidity for a wide variety of securities.
However, “such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability” according to the FSB.
Last year, the FSB adjusted implementation timelines for its policy recommendations to address financial stability risks in SFTs.
The FSB developed 18 policy recommendations published in August 2013 and updated in October 2015 to address financial stability risks from SFTs.
The recommendations cover improvements to regulatory reporting and market transparency of SFTs, regulation of SFTs, and structural aspects of SFT markets.
In the latest statement, the FSB revealed that it will continue to monitor the implementation of its policy recommendations to address financial stability risks in the SFT markets and to enhance the resilience of non-bank financial intermediation.
The FSB has put this in place to ease operational burdens on market participants and authorities and to assist them in focusing on priorities from the impact of COVID-19.
As a result of today’s announcement, the implementation timelines for the FSB’s November 2015 recommendations on haircuts for non-centrally cleared SFTs will now be extended.
Earlier in March, the group of central bank governors and heads of supervision decided to defer the implementation of the Basel III framework by one year to January 2023.
In addition to this, the FSB decided to also extend the implementation dates by one year for its policy recommendations related to minimum haircut standards for non-centrally cleared SFTs.
For bank-to-non-bank transactions, the updated implementation date is January 2023, for non-bank-to-non-bank transactions, the updated implementation date is January 2025.
SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and the secondary market liquidity for a wide variety of securities.
However, “such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability” according to the FSB.
Last year, the FSB adjusted implementation timelines for its policy recommendations to address financial stability risks in SFTs.
The FSB developed 18 policy recommendations published in August 2013 and updated in October 2015 to address financial stability risks from SFTs.
The recommendations cover improvements to regulatory reporting and market transparency of SFTs, regulation of SFTs, and structural aspects of SFT markets.
In the latest statement, the FSB revealed that it will continue to monitor the implementation of its policy recommendations to address financial stability risks in the SFT markets and to enhance the resilience of non-bank financial intermediation.
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